Stochastics: An accurate buy and sell indicator.
It wasn't with RSI, MACD's, Stochastics or some automated trading software obviously.
It's an easy fix, as you will see in this quick primer on Stochastics settings and interpretation.
For instance, one day trader may use
the 3 and 8 exponential moving averages combined with slow Stochastics.
Oscillators are common choices, and SSD(slow Stochastics) can be added to your graph for this exact purpose.
You can use Stochastics oscillator to measure the speed and momentum of a price over a time period.
Weekly and daily Stochastics are above 70 zone and the market has
been in a substantial rally prior to that.
Most traders use 14 days or weeks for Stochastics and either 9 or 14 days or weeks for RSI.
Stochastics, now a very popular tool but unknown to the public back then,
was developed by Ralph Dysant at Market Educators.
For Stochastics, readings below 20 are considered oversold
and you would only take buy signals if the indicator is below that level.
Many traders fail to tap into the power of Stochastics because they are confused about getting the right settings for their market strategies.
You may notice a couple of instances when the MACD and the Stochastics are close to crossing simultaneously:
January 2008, mid-March and mid-April, for example.
After being disappointed by all Stochastics Divergence indicators out there,
I decided to implement my own and make it as flexible and customizable as possible.
The idea behind Stochastics is that as the price of a security increases,
the closing price will fall closer to the highest point over a given period.
Articles in Bloomberg or Reuters,
will often quote the use of oversold or overbought indicators such as the RSI and Stochastics, or quote Bollinger bands and the ADX.
Stochastics and the Relative Strength Index(RSI)
are known in the technical analysis field as oscillators because they move between a low of 0 and a high of 100.
Reflects all variables affecting that market for
any given period of time, using lagging price indictors like Stochastics, MACD, RSI, and others is
just a flat waste of time.
At the end of this bullish move,
we receive a short signal from the Stochastics after the price meets the upper level of the Bollinger
bands for our third signal.
A visual representation of the Swing Low pattern can be seen below: So far, so good, but still we haven't answered the most important question that a trader has:
Day trading Stochastics: When to Enter?
That level also marks the .786 retracement of the breakout swing, adding a fourth point, while Stochastics plunges into the deeply oversold level,
marking a fifth clue that a recovery will begin between 75 and 75.50.